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Wednesday, May 25, 2022

City’s lifeline gears up to cut losses, has miles to go

The latest hike will only partially help the suburban railways, which still faces mounting losses because of massive subsidy in passenger fares, says Priyal Dave

Written by PRIYAL DAVE | Mumbai |
Updated: June 25, 2014 12:51:09 am
There was heavy rush to buy tickets and season passes at Churchgate railway station on Tuesday, a day before the fare hike comes into effect. (Amit Chakravarty ) There was heavy rush to buy tickets and season passes at Churchgate railway station on Tuesday, a day before the fare hike comes into effect. (Amit Chakravarty )

“There is no such thing as a free lunch,” says a railway officer during a casual chat on the steep fare hike on season tickets, which are used by 80 per cent of the 7.4 million daily commuters on the Mumbai suburban railways.

The “steep hike” was moderated on June 24 with fare of second-class railway tickets up to 80 km not changing and the season ticket fares going up only by 14.2 per cent.

Earlier, on June 20, the Ministry of Railways announced a fare hike, proposing an increase in fares of season passes up to three times its present value, following which there was widespread protest by political parties and passenger groups.

While commuters have got a relief after the partial rollback, railway officers maintain that commuters are still paying lesser for journeys they undertake on a season ticket.
“The discount offered on season tickets is huge. Given our losses, we cannot offer so many free trips. It’s crazy,” says the officer, not wanting to be identified.

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“Someone had to take a decision. With politicians developing cold feet repeatedly, the losses have increased drastically and the railways has little choice but to go for a steep hike in fares,” the officer said, before the government decided to mull a rollback in the hike.

According to a recent report by Pricewaterhouse Coopers (PwC), while the BEST, the second largest public mass transportation system in Mumbai, has revised its fare 10 times, the suburban railways has increased its fares only 2.5 times between 1993 and 2013.

In 1993, the BEST charged 33 paise per km against 20 paise per km charged by suburban railways. In 2003, while the railways increased its fare to 40 paise per km, the BEST increased it to Rs 2 per km. In 2013, BEST charged Rs 3per km while the Railways increased its per km fare marginally to 50 paise.

“The suburban section is making losses. For every Rs 100 we earn, we spend Rs 180. Our expenses are bound to rise as commuters will expect more development in the the coming days,” said Shailendra Kumar, Divisional Railway Manager, WR. Similarly, the Mumbai division of Central Railway (CR) spends Rs 250 to earn Rs 100.

‘Gap between income and expenditure widening’
With the previous government refraining from fare hikes in earlier railway budgets, the gap between the earnings and expenditure has deepened over the years, says an officer.

The administration sat with its hands tied at the back. “There was no money. Contractual work was either incomplete or not started at all due to shortage of funds. Technically, the division should have had funds to raise platform height. However, due to no funds, we had to ask for a special fund to carry out the work,” says a senior WR officer, while referring to the platform raising issue in the wake of 16-year-old commuter Monika More’s accident earlier this year.

“Station amenities like Foot over Bridges (FOBs), raising height of platforms, covering over sheds and other infrastructure works can be done at a much faster pace than it is done now. However, due to lack of funds, most of the work stops midway, drawing commuters’ ire,” adds the officer.

Apart from shortage of funds, it is the small percentage of the funds that the railways uses for passenger amenities, which makes matters worse.

For instance, on WR, 60 per cent on the earning is spent on clearing employee wages, 25 per cent on energy bill, 12 per cent of contractual works and the remaining three on material procurement.

On CR, 58 per cent is spent on wages, 21 per cent on energy bill, seven per cent on contractual work, five per cent on material procurement and four per cent on carriage and wagons.

It is the spending on contractual work, carriage and wagon and material procurement that directly benefits commuters.

From cleaning of rakes and station premises including toilets to provision of FOBs, raising platform height, track maintenance, installing escalators, procuring ticketing machines is all done with just 15 per cent of the total earnings on WR and 16 per cent on CR, which officers say is a “difficult task”.

In 2013-14, WR earned Rs 700 crore and spent Rs 1,250 crore. It projects an earning of Rs 1,035 crore this financial year. Similarly, CR earned Rs 751 crore and spent Rs 2,100 crore and earnings are projected at Rs 1,104 crore. The expenditure for 2014-15 is estimated to go up with passengers expecting more development after the fare hikes, say officers.

With minuscule funds for suburban railways, the administration has drawn up a priority list for passenger amenities. The top two priorities are maintenance of tracks to ensure safety of passengers and payment to contractors for various works including cleaning of trains and station premises.

“If the Mumbai Rail Vikas Corporation was not there, the suburban railways would have to purchase rakes apart from increasing railway lines, both of which are extremely expensive projects. Both CR and WR are as such not purchasing or creating any new assets,” said another officer.

Until a few years back, the Railways was known for its timely payment to contractors.
“The contractors are complaining now. They repeatedly ask for payments. If the situations continues like this, it will only become worse for us,” says another officer.

Suburban railways the loss-making child of IR
While the lifeline of Mumbai has to do a lot to fulfil expectations of its commuters, when it goes back to its parent body, the Railway Board in New Delhi, it is rarely rewarded for its feats.

On an lighter note, a railway officer says, “When the suburban railway officer goes to the Railway Board and tries to bargain for funds citing maximum number of daily services and daily passengers, he is told he is the ‘loss making boy’ of the Indian Railways. For the operator, it does not matter how many trains you run or passengers you transport…he just says you are earning me a loss of Rs 2crore every day, so just go back .”

Sharing an anecdote, another railway officer says, “Mumbaikars want upgraded facilities at suburban stations like escalators. However, the Board views it as another loss-making proposition. There is very little a loss-making division can bargain for. “

Freight too in danger
To make up for its losses, the Indian Railways cross-subsidises the passenger ticket by paying 40 per cent of it from its freight earnings. Freight charges had also gone for an upward revision of 7.7per cent in 2004, followed by another revision in of 2 per cent in 2012 and now a steep 6.5 per cent in 2014.

However, given the rising cost, the cross-subsidy element is making the railways an unattractive model to freight customers who now prefer road and shipping as a cheaper alternative.

“Several concessions and discounts offered to our freight customers have been taken back over the years. Gradually, the share of railways in freight transportation has come down from 40 per cent (1970) to 23 per cent in 2014,” says a railway officer.

“Freight has always been used to subsidise passenger fares. However, due to excessive losses, the Railways has been increasing freight charges to the effect that we have lost out on oil and iron ore customers to a large extent. When it comes to cement, we are performing poorly,” says a senior railway officer.

Voicing a similar opinion, a senior railway officer says, “We have lost out on oil and iron ore customers because our financial model was becoming unsustainable for the customers. We cannot afford to raise freight charges further.”

“The losses from the suburban traffic are presently being largely cross-subsidised by the earnings from  the freight stream. This has led to very skewed freight rates for rail movement and has adversely affected the competitive edge of the economy as a whole. A suitable alternate mechanism is  required to sustain the losses incurred by the suburban traffic,” said Mukesh Nigam, Divisional Railway Manager, CR.

Hike unjustified, not properly discussed
Commenting on the fare hike which was first announced on May 16 before being rolled back, a senior Railway Board officer says, “The fare hike was not discussed properly. In fact, many officers in the Board did not know about it, until the fare hike was announced. On June 20 too, the fare hike was done without proper discussion.”

According to the officer, there is a likelihood that people who purchase passes for occasional travel will stop doing so, resulting in loss of revenue. Besides, with very less ticket checking on suburban railways, commuters will be tempted to travel without passes.

“Even if they are caught, they will end up paying a fine which will still be lesser than the season pass,” said the officer.

Commenting on the fare hike, former railway minister Ram Naik says, “The fare hike of season tickets is unscientific and unjustified. The suburban railways are profitable and the railways are misguiding commuters when they say they are running into losses. Given the condition of Indian Railways, one needs to look at increasing fares but that should not be the only option. Using railway land for commercial development is necessary.”

Low political will and cheap labour
The biggest and probably the only reason cited by officers for the mounting losses across the division is the “cold feet” developed by ruling governments when it comes to fare hike.

Ever since former railway minister Dinesh Trivedi was ousted for trying to raise fares in the Railway Budget of 2012-13, the subsequent incumbents have been extra cautious on the issue of fare hike.

Way ahead
In addition to hiking passenger fares, public-private partnership models are also being pitched as the way forward to increase revenue. “PPP is a good model to ensure that assets are created without increasing passenger fares sharply,” says a senior officer.
In its report to the Mumbai Rail Vikas Corporation, PwC has suggested the railways to go for both fare and non-fare box interventions.

Citing a revenue potential of Rs 14,000 crore to Rs 40,000 crore, the report suggests that the railways commercially develop 60 sites, including stations, vacant plots, operational assets and residential colonies.

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